Monday, November 23, 2020

The Economics of Strategy

A good blog read on this topic -- the Economics of Strategy -- is found at herdingcats
written by Glen Alleman.
In his posting, Alleman makes a couple of important points:
  • There are many tactical actions that can be taken within a project -- like attention to risk management -- that ultimately have strategic outcomes for the business: enhanced profit on the income statement, sustainable free cash flow, and a stronger balance sheet
  • Likewise, there are many tactical decisions about product features and functions that will enhance customer value but have only marginal impact on business outcomes, and yet have strategic consequences for the business. See: customer loyalty

Four elements of strategy

Of course, attention to strategic finance and customer satisfaction are two of four components of a good business strategy. 

A third is development of the business capability and capacity to innovate and produce. Typically, there is a cost-benefit and cost-outcome analysis that is required to figure out how much to invest in training and development of people, and how many robots to purchase.

A fourth is just do what you do all the better. That is, invest in operational effectiveness -- lower overhead, fewer reworks, more throughput for the dollar.

All four contribute

So, when you are considering all economics contributions to or effects on strategy, the balanced scorecard of finance, customer satisfaction with the value delivered, investments in organizational development, and improvement in the economics of throughput

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